NIFTY Index Chart Analysis

Nifty to continue its forward march. 

All the benchmark indices are trading at a lifetime highs but the Smallcap-100 index is 41.07 per cent and Midcap-100 index is 22.44 per cent, away from their life time highs. This divergence between the benchmark indices and the broader indices is not a character of earlier bull market conditions. The Nifty was able to rally 14.36 per cent from its August 2019 lows. The Smallcap-100 index rose by 11.25 and the Midcap-100 index gains by 13.11 per cent from its August 2019 low. 

Even in the recovery path, these broader indices are lagging in comparison to the benchmark. The Banking, Financial Services, and Services sectors also reached to the lifetime highs on Tuesday. When BankNifty is at lifetime highs, the PSU Bank index is still 44.66 per cent away from its lifetime high. So, the sectoral participation is also lagging in this bull market. This is only a selective large-cap market rally with the support of liquidity. Despite the lack of earnings growth, the Nifty is trading at 28.35 PE. Earlier in February 2000, January 2008 and August 2018 tops, the Nifty traded in similar PE. On June 3, 2019, the PE reached to the historical high of 29.90. With this data, we are at an overvaluation zone. It’s historically proven that levels above 28 PE are not suitable to invest aggressively for a long-term. 

Technically, Nifty is in confirmed uptrend in all parameters. Nifty closed above the November 28 high with strong bull candle. As we discussed in the earlier columns, the 11,800 level worked as the strong base support for the market. The striking observation is that when the market is at a peak, the number of distribution days is higher than the typical bull market consolidation. In the last five weeks, there are at least five distribution days. Even a day before making a lifetime high, the Nifty marginally escaped a distribution day. Any additional distribution day in this week means this uptrend is vulnerable to a correction. Nifty is developing a rising wedge pattern on a weekly chart. The wedge resistance is placed at 12,400 levels. The 127.6 Fibonacci extensions are placed at 12,507 levels. This zone of 12,400-12,500 is a significant resistance for the mediumterm. Before reaching further highs, the market will correct to 11,800 levels once again with a higher probability. This correction may trigger before the budget. Thus, January could be a tricky month or a top for the medium-term. 

There are several technical parameters pointing the negative divergence. The RSI is still making lower lows weekly. Though it came out of the downward channel on Tuesday, it is incapable to make a new swing high. Even MACD also have a serious negative divergence on a weekly chart. The histogram is not moving up even though the price is higher. The trend strength indicator ADX is flat for the last two months and is indicating that its strength is neutral. An interesting observation is that, till Monday, there was a bearish belt hold pattern on the daily, weekly and monthly chart. With Tuesday’s close above the monthly open price, the bearish belt holds are negated. But, currently it looks like a dragonfly Doji or a hanging man on a monthly chart. These evidences are a caution for the aggressive long positions. As long as Nifty protects prior day low on the closing basis, keep the trend of 12,400 targets in mind. But, in any case, if it closes below the prior bar low, book profits in long positions. A close below 12,000 will open short opportunities with the target of 11,800 again. Only closing below 11,800 on weekly basis bears will dominate the market. 

HDFC LIMITED.......... BUY ......... CMP Rs 2430.80
BSE Code : 500010
Target 1 .... Rs 2525
Target 2 ..... Rs 2550
Stoploss.... Rs 2340 (CLS) 

India’s leading housing finance company, having a vast distribution network in the country, just made a lifetime high on Tuesday. Technically, the stock has broken out of 20 week cup and handle. The cup depth is 17.25 per cent. The volumes are recorded above the average. The stock is clearly in uptrend since February 2016 and making higher highs and higher lows on a weekly chart. It is trading above all moving averages as 50 and 200 DMAs are trending up. The RSI is in a super bullish zone above 68 currently. The MACD histogram indicating the bullish momentum is picking up. The Directional index ADX is also showing the strength in the stock. It meets the Minervini’s trend template and Daryl Guppy’s MMA rules. It is also giving the buy signal in Martin Pring’s long-term KST set up. The stock is also meeting all the CANSLIM characteristics. Its price relative strength is at EPS strength, which is at 87. The buyer’s demand is at a greater level as all the institutional investors and fund houses hold this stock. The consistent double digit growth in sales and earnings and 13 per cent ROE with earnings stability looks attractive fundamentally. It is also meeting most of the Warren Buffett rules of investing. Buy this at Rs 2,430.80 with a stop-loss of Rs 2,340. The medium-term target is placed at Rs 2,525 and Rs 2,550. 

MAHANAGAR GAS ............. BUY ...... CMP Rs 1071.80
BSE Code : 539957
Target 1 ..... Rs 1155
Target 2 ..... Rs 1170
Stoploss.... Rs 1000 (CLS) 

One of the country’s leading natural gas distribution companies, Mahanagar Gas Limited (MGL), caters to 1.21 million households, 3,850 commercial establishments and 75 industrial establishments as customers. It doubles its earnings in the recent quarter with a history of consistency in earnings. Technically, the stock has broken out 32 weeks cup with 29.34 per cent depth. The stock also came out of 82 week range. It formed a base at Rs 754 level and finally broke the range on Tuesday. The stock is also trading above the all short and long-term moving averages. All the moving averages, including 200-DMA, are trending up. The leading indicator RSI is also coming out of cup and handle formation, and it is in a bullish zone on a weekly chart. There are no negative divergences visible on any time frame in major indicators. The MACD line is above the signal line for more than three months. The directional indicator ADX (32.81) is above the +DI and -DI showing strength in the trend. The stock is also meeting most of the CANSLIM characteristics. Its price relative strength (RS) is as high as 90 and EPS strength is at 94. The greater buyers demand shows the accumulation by big investors. The institutional investors increased their stake in the company by 27.21 per cent and the number of funds invested in this company increased by 13 per cent. The double digit sales growth for the past 8 quarters and the 100 per cent increase in EPS makes this stock attractive at current level. Buy this stock at Rs 1,071.80 with a stop-loss of Rs 1,000. The medium-term targets are placed at Rs 1,155- Rs 1,170.